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To: Mohan Marette who wrote (48931)	2/26/1998 8:50:00 PM
From: Barry A. Watzman	Read Replies (4) \| Respond to of 186894

I have to say, I am puzzled by the reaction to the AMD news. If the problem with the K-6 yield is due to the chip design, IBM will probably have no better yields than AMD is having. If the problem with the K-6 yield is that AMD can't manufacture chips, then you are left with a fabless semi company that still has the overhead and the cost structure of a semi company with in-house fabs. And none of this changes the fact that PII is killing the demand for socket 7 chips anyway, another price reduction or two (get the PII/233 and possibly the 266 under $200), get the i740 grahics chip out into real products (which requires AGP which requires slot 1, at least for now) , and no one will want a K-6 anyway. So maybe they have a few months. Meanwhile, IBM isn't doing this for charity: The need to go to an outside fab to get what the inside fab should be able to produce (while still incurring all of the inside fab's costs and overheads) can't help but hurt the bottom line even more. Maybe this is the scenario: After the 4q conference call in Jan, AMD's CFO said that AMD could run out of cash by the end of the 2nd quarter. Jerry said they couldn't abandon plans to go to 0.25 micron, they were "very pregnant" (his words). Well perhaps they DID abandon them, using IBM is their alternative. It avoids the capital cost, which they don't have the money to pay, and substitutes a higher per unit cost. I can see how this could let them survive for longer, but I cannot see it as a solution to the bottom-line problem, namely that they are operating at a loss and will eventually go under unless they can find a way to turn things around. Does anyone else see anything that I am missing ? Could this be a trial balloon for an IBM acquisition of AMD ?